Lewis Production Company had the following projected information: $\begin{array}{lr}
\text { Selling price per unit } & \$ 150 \
\text { Variable cost per unit } & \$ 90 \
\text { Total fixed costs } & \$300,000
\end{array}$
What level of sales dollars is needed to obtain a target before-tax profit of $75,000?

Question

Lewis Production Company had the following projected information: $\begin{array}{lr}
\text { Selling price per unit } & \$ 150 \
\text { Variable cost per unit  } & \$ 90 \
\text { Total fixed costs } & \$300,000
\end{array}$
 What level of sales dollars is needed to obtain a target before-tax profit of $75,000?

Quizplus · Accepted Answer

To find the sales dollars needed to achieve a target before-tax profit, we use the formula: $$ \text{Required Sales} = \frac{\text{Fixed Costs} + \text{Target Profit}}{\text{Contribution Margin Ratio}} $$ where the Contribution Margin Ratio (CM Ratio) is calculated as: $$ \text{CM Ratio} = \frac{\text{Selling Price per Unit} - \text{Variable Cost per Unit}}{\text{Selling Price per Unit}} $$ Substituting the given values: $$ \text{CM Ratio} = \frac{150 - 90}{150} = \frac{60}{150} = 0.4 $$ Therefore, the required sales to achieve a $75,000 profit are: $$ \text{Required Sales} = \frac{300,000 + 75,000}{0.4} = \frac{375,000}{0.4} = \$937,500. $$

Lewis Production Company Had the Following Projected Information What Level of Sales Dollars Is Needed to Obtain a Selling